It is a beautiful autumn day in London, unseasonably warm and sunny, the city looking its very best, and I am trying to find a hook for this blog. I should speak about the European debt crisis, the sharp drop in equity markets last week after “Operation Twist” was announced, and the washout in commodity markets, not least in gold. I will cover all these topics but what should my hook be?
A good place to start is always the mainstream media, first and foremost the Financial Times, that most mainstream of mainstream organs, reliable purveyor of common wisdom, a paper written by the establishment for the establishment in the unshakable belief that for every problem there is a political solution. If this won’t shake me out of my jetlag and stomach-bug induced stupor, nothing will.
In today’s FT Martin Wolf writes again about the European debt crisis, a problem for which, so he believes, there is a political solution.
“The emergence of doubt”
Before we go to the solution, let’s specify the problem first. After the usual references to the great and powerful who met in Washington last week, the “clear, compelling, courageous” analysis by the great IMF, and quotes from Mr. Wolf’s favourite celebrity bureaucrats, Mr. Geithner and Mme Legarde, he correctly identifies the problem: Most sovereign states are bust and so are the banks, which are today a protectorate of the state and have repaid the generosity of their protectors by lending excessively to them. Mr. Wolf is too skilled and sophisticated a writer to put it this bluntly but if you read his article that is what it boils down to:
“The emergence of doubt about the ability of sovereigns to manage their debt undermines the perceived soundness of the banks, both directly, because the latter hold much of the debt of the former, and indirectly, via the dwindling value of the sovereign insurance.”
And why are we in this mess? Because some time ago we adopted a system of limitless and constantly expanding fiat money. In such a system, the privileged money producers – no prize for guessing who they are, correct, the state and the banks – apparently never have to shrink and can conduct their financial affairs in the comforting knowledge of unlimited access to the printing press. No credit contraction, no bank failures, no sovereign defaults. Whenever the money runs out we simply lower interest rates, create more bank reserves out of nothing, and off we go again. This has worked for 40 years. Alas, no more.
The present problems, the unsustainable bank balance sheets, the out-of-control budget deficits, and the mindboggling levels of public debt, are inconceivable without a system of constant fiat money creation and extended periods of artificially low interest rates courtesy of the central banks. Or, to put it the other way round, a monetary system like ours, in which interest rates can be set administratively to encourage bank lending and to underwrite the constant growth of state and banks, must ultimately lead to a bloated public sector and a bloated banking industry. The fiat money system is feeding its own disintegration.
Bail me out again, Sam.
Mr. Wolf offers two solutions. Both are dangerously misguided, which means that both stand an excellent chance of becoming policy.
Apparently, Mr. Wolf does not want to deprive the banks and the states of their special status. They lent too much and they borrowed too much but the laws of economics, the laws of gravity and the laws of logic are still not supposed to apply to them. They should be saved again.
Wolf says the banks should be “recapitalized”.
Wait a minute. These are failed corporations. They lent billions to corrupt Greek politicians. They put their chips on red and black came. They lost.
For capitalism to work it requires that the market be cleansed of failed corporations, not that these corporations get “recapitalized”. We are simply perpetuating the bad habits of our fundamentally flawed and anti-capitalist monetary system by shielding the banking industry from its mistakes and never allowing market forces to shrink it. This is not only a mistake for reasons of “moral hazard”. That is the least of it. It is simply a fact that after a forty-year fiat money binge the banking industry is too big, it is now sized for a never-ending credit boom when we just entered the credit bust. We should not be relying for our economic future on an ever more bizarrely propped-up banking sector.
But this “solution” begs another question: who is going to pay for this? We just learnt that the state is bust, too.
Well, while he is at it, Mr. Wolf also wants to save the state. How? Via a super-sized EFSF (European Financial Stability Facility) – a mega bailout fund. Mr. Wolf joins his buddy, Tim Geithner, in recommending “shock and awe” – not that this term conjures many positive memories.
In short, more money is needed. Much more.
“Given the funding needs of banks and sovereigns, this translates into well more than €1,000bn, and, quite plausibly, several times that number.”
Bring your bazooka
Several trillion? – Me thinks that Mr. Wolf has been hanging out it in Washington too much. I am convinced that in the macho atmosphere of IMF and World Bank power banquets you are now looked down upon as a policy-making lightweight if you are still content with assigning only billion dollar price tags to your pathetic policy initiatives. ‘Trillion’ is the new denomination for the grown-ups in the policy elite. Hey, Europeans, if you want to be players you better add a few zeros!
But again, where does the money come from?
Want to guess?
Here is Wolf again, warming to the military theme:
“The eurozone needs a much bigger bazooka. Apparently, five different plans are under discussion. These involve leveraging up the EFSF’s money, by issuing guarantees rather than loans, or borrowing from the European Central Bank, or by borrowing in the markets. But if action needs to be immediate, as it does, the only entity able to supply the needed funds is the central bank.”
Ah, here we are. The central bank. Finally. After all the elegant prose, the bureaucracy worship and the habitual name-dropping, the bottom-line is this: turn on the printing press! Print more money! Print! Print!
This is madness, so I do think it is precisely what will happen. Mr. Wolf will get his way. Because the policy elite thinks just like he does. Default is not an option. Banks cannot be allowed to fail. States – at least if they are not called Greece for which this comes too late – cannot be allowed to fail either. We rather try and print our way out of this. Everybody gets bailed out – via the printing press.
Believe me it will not work. It will lead to complete disaster. But it will be tried.
Mr. Wolf looks at it in hope, I look at it in horror. Once this gets implemented and the market realizes what is going on, it will dump government bonds, real yields will shoot up, and confidence in state paper money will evaporate. What will the central banks do then? Print money faster as the overstretched system cannot cope with higher real yields.
So what should you do to protect yourself? – Well, I don’t want to give investment advice, so please treat this carefully – I could be wrong, so this may not work but I think it wouldn’t be unreasonable to ditch government bonds, and while you are at it, ALL bonds, and man the lifeboats, which consist of gold and silver.
But what did markets do last week? They trashed gold and silver and lifted government bonds to new heights. Does it make sense? No, it doesn’t. But here is why I think it happened.
The market was apparently disappointed with “Operation Twist”. This surprised me, and maybe surprised the Fed. I didn’t think that any more than a portfolio adjustment at the Fed was expected at this meeting. There was always a chance of QE3, or a lowering of the interest rate the Fed pays the banks on the gargantuan reserves they are presently keeping at the central bank, but in my view, most people had assigned small possibilities to these scenarios at this point in time. Maybe it was the combination of the bleak assessment of the economy by the Fed and the absence of any promise of future quantitative easing that disappointed the market so much.
Is the Fed done?
Could it be, as Russell Napier, one of the speakers at the conference I attended last week in Hong Kong, suggested, that the Fed was reaching the limits of balance sheet expansion and money printing? Had monetary policy reached the end of what could be expected of it? Would a deflationary correction, which the market had been craving for many years, a cleansing of its accumulated dislocations, finally be allowed to unfold, if not by political design, then by necessity?
The Fed’s balance sheet has reached a leverage ratio of more than 50-to-one, as Russell pointed out in Hong Kong. When Bear Stearns and Lehman Brothers went under they had ratios of 30-to-one and 40-to-one. Additionally, Bernanke is getting a lot of flak and may get tired of being called Helicopter Ben at those power banquets in Washington with Geithner, Legarde and Martin Wolf. Could the prospect of no more cash from Ben even explain the drop in the gold price last week, and the rise of the dollar in fx markets? Does paper money get a lifeline?
No, I don’t think so. But let’s look at gold.
As my good friend, the Swiss-based bon vivant and intellectual, Tristan Geschex, said to me, there are a couple of explanations for the drop in gold:
First, while gold remains, first and foremost, eternal money and is always the monetary asset of choice when paper money dies, it is also still an industrial commodity. I suspect that only a small portion of its present market value reflects compensation for industrial use but when industrial commodities get hammered because of a weak economic outlook, that element of the gold price – even if it is a minor element – will get ‘adjusted’ as well.
Second, there are market dynamics. Gold is held alongside other assets in the diverse portfolios of hedge funds and other institutional investors. When those take a hit in some markets, they may also reduce positions in other markets, in particular those where they can still realize a profit, and investors most certainly could still take profits last week on their long gold positions. Sharp sell-offs in equity markets initiate balance-sheet reductions and traditional de-risking (i.e. returns to the paper-dollar base) at financial firms and leveraged funds. These also tend to affect gold, at least in the short term. In the second half of 2008, gold famously took a big dive, although it then rallied sharply when the market woke up to what the policy response would be.
Third, the rehabilitation of paper money as a result of the Fed’s reluctance to print more money.
This is the most serious threat to anybody who is holding gold as a monetary asset, as the ultimate self-defence in an economy characterized by weak banks, overburdened sovereigns and excessive debt loads, in which the printing press is already being used to postpone the inevitable. Is the Fed now finally becoming reluctant to print more money?
Sadly, I don’t think so. I think they should stop the printing press but I don’t think they will.
Continue reading at Paper Money Collapse.
“Once this gets implemented and the market realizes what is going on, it will dump government bonds, real yields will shoot up, and confidence in state paper money will evaporate. What will the central banks do then? Print money faster as the overstretched system cannot cope with higher real yields”.
However, for now the market is still trading on ultra-low yields despite the priting in the US. Meanwhile, in those countries without the power of printing money, yields are higher: Spain, Italy, Greece etc.
This suggests that while the government maintains the ability to enforce legal tender laws, and that 50% of each of every developed economy now IS the state, all paying in State-backed money, that there are greater insttitutional barriers to begin to switch currencies and transact in something different than there were in times gone by when the was always at least one gold-backed currency and much smaller governments. Now, there is no conveniently traded alternative.
While this is the case, it makes sense that the lowest-risk fixed interest asset in a time of financial stress is the government bond since these are explicitly backed by the printing press, whereas other assets are not. Hence, we see government yields decline and credit spreads widen.
While no doubt, if the course of action you outline is followed, in the long-term you must be right, as Mises points out, it is not until the masses wake up, understand that inflation is a permanent policy and begin to transact in something different/hoard real assets that runaway inflation occurs. It may be that – due to the factors listed above – this takes longer than Cobdenites expect.
It would seem obvious to the small saver who wishes to see his savings keep pace with inflation, have a store of good value which cannot be impaired and leaves the holder well prepared for a Weimar type disaster.
Just as in the ’70’s the answer is tins of Baked beans and other tins of food that might take ones fancy, stored securely in the garage and in sufficient number to last for two years.
If it all comes right the store of value can be held and passed on to grandchildren and if it all goes wrong, then the only person in the street to have a hearty lunch will be you.
Gold now is as speculative as anything else and an investment which might wipe out the average investor, whereas baked beans…….
I hate to throw cold water on the current mass hysteria on the subject of money printing, but according to Samuel Brittan the UK’s money supply actually DECLINED by 15% in real terms over the last 12 months. See:
As to the US, the M2 money stock has risen by 7% a year over the last 4 years: not unreasonable in a recession. See:
Given the dramatic decline in the velocity of circulation of money, that 7% is perfectly reasonable – indeed, not enough, I would say. See:
As David Hume pointed out over two hundred years ago, increases in the stock of money are one big irrelevance: the important point is the rate at which it is spent. It would be nice if the human race had learned something about economics in the last two hundred years.
As to Detlev’s objections to subsidising lame duck banks, obviously he is right. As Walter Bagehot said 150 years ago, the best way to stifle efficient banks is to subsidise inefficient ones. The human race hasn’t learned that lesson either. It’s enough to make you weep.
Quite right Ralph. Many Austrians have been predicting hyperinflation and rising government bond yields (in the US and UK) for years now. When will they admit that they were wrong? All they are doing by continuing to push this argument, which stands against all the evidence, is losing credibility.
At 5% inflation we need to earn 8% to stay still in purchasing power after tax. This is mass fleecing of the common man. Is this just normal fleecing or hyper inflation fleecing? I do not know, but it is sure as hell fleecing. You do not need many years of this until your currency has halved in value, under a decade. This is a hyper inflation for sure. It does not have to be a blatant as Zimbabwe with quadrillion dollar notes buying a cup of tea.
Also, our CPI rate as you know strips out anything that is volatile – re its price is going up.
Also, when you look at productivity gains of 1%-2% per year which are price deflationary , if you take this into account as well, our purchasing power is being fleeced even more.
I think it is very safe to say we have a very pronounced and dangerous redistributing inflation in progress right now.
We must also remember the banks have so much reserves in the central bank that if they ever did get out and lend it, then prices would take off even more.
If you define the current inflation rate of 4-5% as hyperinflation, then the UK has been in a state of almost continuous hyperinflation since the end of the second world war. Over that time the common man, far from being fleeced, has experienced an unprecedented rise in material prosperity – so maybe we need this hyperinflation to continue?
You are right that there are large amounts of reserves in the central bank. But these will only start to be lent out when the economy is well on the road to recovery. At this point, the central bank will start to sell the assets it has accumulated back to the market, reducing base money to limit the inflationary impact.
Leading to large scale interest rate hikes – if only it was so easy!
Dan, I get rich by inflation, the guy on fixed income and the poor do not.
Once confidence blows, then it will really up tick.
@ Ralph Musgrave. It would seem to depend on the underlying motive of the Central Banks. If it is to endevour to restore the economy to pre 2007 levels by the use of monetary policy, then this is a rational point of view, to the extent it might serve a rational purpose.
It ignores the reason for the slowdown in the velocity of circulation but simply endevours to replace it with more money.
These Monetarist pranks have been given a chance and have been roundly proven to be ineffective. We should now look to the markets to show the way and allow the slowdown to rid us of the bad investments of the past.
Until we do so and the banks are properly cleansed of their bad assets and the housing market is allowed to fall freely until demand is stimulated, there will be no recovery.
Waramess, I never really get the Austrian idea about the need to purge bad assets or investments. I don’t favour never ending subsidies for lame ducks, whether its British Leyland or implicit subsidies for too big to fail banks. Nevertheless, if we choose to continue subsidising specific industries, I don’t see why that stops the recovery. After all we give astronomic subsidises to health care (the NHS) and education.
A pointless subsidy misallocates resources and means a lower real GDP than would otherwise obtain, but it won’t preclude full employment, far as I can see.
Re housing, that’s pretty much of a genuine free market, seems to me.
“Re housing, that’s pretty much of a genuine free market, seems to me.”
Hmm. Except for the small matter of
– artificially low interest rates, which allow people to afford massive mortgages
– artificial scarcity of land (due to planning restrictions)
– social housing, which causes a scarcity of private sector housing
– distortionary taxes
We might not have the crazy government interventions they have in the US housing market, but the points above mean that the UK housing market isn’t even remotely close to being a free market.
I agree with Ralph that when we discuss inflation the “velocity of circulation” or as I prefer it the demand for money is just as important as the money supply. If the money supply increases while the demand for money is increasing proportionally then that won’t cause price inflation.
Ralph points out that recently the money supply has been falling in the UK. That’s right, and it’s been falling by Anthony Evan’s Austrian Money Supply measure too. So, in Britain we don’t have much in terms of a monetary drive behind price inflation at present. As folks have pointed out elsewhere part of the reason for recent price inflation has been the fall in the net present value of Britains exports which in turn has caused a fall in the value of the pound.
That said I agree with Toby that price inflation is fleecing. In this thread Dan and Ralph trying to they rely on the usefulness of money creation during recessions to justify price inflation in normal times. This doesn’t follow and it’s not even proper Keynesianism.
This is how I look at things… At present we have had steady price inflation for many decades. That means that price inflation is expected and that expectation of it attenuates its effects to a degree. For example, I know that if I don’t get a pay rise of at least the CPI every year then I’m getting a pay cut in real terms. That said I don’t think account for price inflation is taken in every monetary calculation. This means that if price inflation comes in over the expected rate then plans are frustrated, and the same occurs if it comes in under the expected rate.
But, none of this justifies having a positive expected rate. Continuous money creation can be used to create a positive expected rate. Doing that is seigniourage, the state profits by creating reserves. Now it could be argued that this is a good policy because it provides income for the state and supports it’s activities. I think anyone who wants to make that argument (Ralph, Dan?) should make it in the open though.
Rob, even if the state wasn’t creating any new reserves, it would still be earning seignorage from the portfolio of bonds behind the reserves. You are right that the state earns more seignorage through increasing the money supply. But this isn’t the reason behind having a positive expected rate. The main reasons are:
Firstly, being able to have a negative real rate of interest, which I think is a useful policy option in a recession.
Secondly, reducing unemployment in the long run. It is very hard for firms to cut nominal wages if they are in difficulties, which leads to them making redundancies when they could keep workers on if it was possible to cut wages. Having a low positive rate of inflation makes it possible for firms to make real cuts to wages whilst keeping the nominal wage the same.
Thirdly, there is a lower risk of deflation with a positive rate.
There are certainly some sound reasons also for targeting a zero inflation rate. But on balance I think a positive rate is better.
“Firstly, being able to have a negative real rate of interest, which I think is a useful policy option in a recession.”
Nonsense. The interest rate should be determined by the free market, according to the time preferences of borrowers and savers.
Any government meddling with the price of credit, whether in good times or bad, will cause trouble.
mrg, the points I made are to do with central bank money policy. Free banking is a completely different issue.
Secondly, reducing unemployment in the long run. It is very hard for firms to cut nominal wages if they are in difficulties, which leads to them making redundancies when they could keep workers on if it was possible to cut wages. Having a low positive rate of inflation makes it possible for firms to make real cuts to wages whilst keeping the nominal wage the same.”
1) redundancies aren’t necessarily a bad thing; it can be an opportunity to get rid of underperforming workers (leaving space for more deserving and productive hires in the future)
2) some private sector companies already impose wage cuts during recessions, as an alternative to redundancies. We’d see more of this if inflation didn’t distort people’s perception.
“some private sector companies already impose wage cuts during recessions, as an alternative to redundancies. We’d see more of this if inflation didn’t distort people’s perception.”
Yes, but that doesn’t alter the fact that it is much easier to cut real wages if there is some inflation, which makes the adjustment process less painful than it would be otherwise.
In a central banking system the outstanding quantity of base money and reserves can be thought of as a loan to the government at low or zero interest. I think it’s a bit tricky to compare that with other systems though. I’ll explain more if you’re interested, but it seems beside the point of our discussion here.
In some ways this comes back to the liquidity trap theory, which we’ve discussed several times. My main problem with this view is the importance it places on interest rates. I continue to think that changes in the interest rate aren’t particularly important, it’s the changes in the money supply they reflect that are really important.
I’m not convinced by that explanation either. I don’t think workers are fooled by nominal wages. Price inflation indexes have existed for years and years now and I think most people are quite aware of what a real wage cut is.
Those who don’t understand are of-course being tricked, their future plans are on false premises. Of course that may be socially optimum in a utilitarian sense, but I’m not persuaded that it is. It’s a much more complicated question than Keynesians claim. Lower unemployment is one benefit, but higher spending on consumption by those persuaded to accept lower wages by money illusion is a cost. Another cost is that those persuaded by money illusion are likely to take higher risks in investing than they would otherwise.
But, what risk is deflation per se? If deflation is driven by a rise in demand for money then I agree that can be damaging because expectations and the time prices take to change means that output will fall. But how can it be destructive otherwise?
If you think it is then do you think that deflation coming from different sectors of industry is destructive? If my employer makes some types of it’s silicon chips cheaper does that have negative externalities?
“In a central banking system the outstanding quantity of base money and reserves can be thought of as a loan to the government at low or zero interest.”
I’m not sure about this – surely it would be best to think of it as a loan to the commercial banks from the government? It is the government that is earning interest and seignorage income.
“My main problem with this view is the importance it places on interest rates. I continue to think that changes in the interest rate aren’t particularly important.”
Maybe one way of looking at the importance of interest rates is the following: in the market, there can never be a negative nominal interest rate, i.e. no creditor is ever going to pay a nominal sum to lend their money to someone. I know that we have discussed before how this limitation can be circumvented by the central bank for the limited case of central bank reserves, but this does not apply for borrowers and lenders in the market. However, it is entirely possible to have a negative real interest rate with some inflation – many people with a mortgage are benefiting from this at the moment.
“If you think it is then do you think that deflation coming from different sectors of industry is destructive? If my employer makes some types of it’s silicon chips cheaper does that have negative externalities?”
I think that any kind of falling prices in aggregate are a problem, even if this is a result of efficiency gains. One issue is that, when prices are falling, just sitting on cash becomes an investment with a positive real yield. This means that people may be less willing to spend. Also, wages as well as prices may have to fall in a deflationary environment; and as I said in my last post, I think that it is extremely difficult to cut nominal wages, and higher unemployment would be the result.
“many people with a mortgage are benefiting from this at the moment”
… while net savers are suffering from it.
The government shouldn’t be favouring one group over the other, or presuming to guess what the ‘right’ rate of interest is.
There are problems with this viewpoint, I’ve criticised it in these comment myself before. But, the reasons then were quite complicated.
To understand it, imagine that the central bank wants to expand the quantity of reserves held by commercial banks by £100. In that case the central bank will buy a bond worth £100 and pay using reserves. Now, the central bank hold that bond which pays a normal interest rate as an asset. The matching liability for that bond is new £100 of reserves. But, little or no interest must be paid on this liability. This leads to a profit for the central bank which goes to the government.
I’ll leave why this explanation has problems as a homework exercise ;)
That isn’t true if the act of lending comes with non-monetary benefits. For centuries banks charged for banking services, and even charged annual fees in proportion to the amount in the account. To put it otherwise, they charged negative interest rates, account holders had to pay to lend to them. It was still like that in Ireland until just before I moved here in 2006.
It is true though that the non-monetary benefits of a loans must be sufficient to make it a more attractive alternative than holding cash/outside money.
Yes, but are interest rates so important that this has an important effect in the short-term?
When I hear Keynesians say things like this they sound to me like 19th century “Pre-Monetarists” who believed in constant money velocity. It sounds to me like your saying that money is neutral to every transaction except debts. You seem to be saying that when the central bank creates more money that is stimulative because it reduces the real interest rate in the short-term money market. I don’t believe that is the only effect or the main one. I think it’s stimulative because injections of money are stimulative! The injection/cantillon effects and “sticky prices” (or more accurately prices that take time to change) ensures this. (This was shown in the 19th century in Britain through the effect of various laws, I can explain if you like).
Well, you certainly said that in your last post, but you haven’t answered any of my criticisms of that. I think on this issue Keynesians are 80 years behind the times, even when Keynes wrote the General Theory price indices existed. I don’t think accounting for price inflation/deflation is perfect, but it certainly exists.
Check the last paragraph you wrote for consistency :). In the first part of it you suppose that the common man is capable of understanding “real” prices and understanding that when there is price deflation then the holding of money results in a real gain. But, in the second part you assume exactly the opposite. You assume that the common man isn’t capable of recognizing that a constant nominal income is a cut in real income when there is price inflation.
“That isn’t true if the act of lending comes with non-monetary benefits. For centuries banks charged for banking services, and even charged annual fees in proportion to the amount in the account.”
Yes, that could be the case for checking/current accounts, but my point stands – it is easy to have a negative real rate of interest, but very difficult to have a negative nominal rate of interest.
“When I hear Keynesians say things like this they sound to me like 19th century “Pre-Monetarists” who believed in constant money velocity.”
I’m afraid that I don’t understand your point here. Are you saying that there aren’t negative real interest rates at the moment? Why am I saying that money is neutral to every transaction except debts?
“Well, you certainly said that in your last post, but you haven’t answered any of my criticisms of that.”
Downward nominal wage rigidity (and the importance of low inflation for wage adjustments) is well recognised in the economic literature, and has been documented in numerous studies (see http://www.ecb.int/pub/pdf/scpwps/ecbwp270.pdf as an example) People do certainly suffer from money illusion. I’ll try and illustrate with an example. In scenario 1, inflation is at 4% and workers in a company are given a 2% nominal pay rise. In scenario 2, inflation is at 0% and workers are given a 2% nominal pay cut. I’m sure you can imagine that the reaction of the workers in each scenario would be very different, despite the two scenarios being equivalent in real terms. Yes, this is irrational as the real result is the same; but that’s humans for you. Note that this money illusion is present only at low inflation rates; as the inflation rate increases, people become much more aware of its effects and compensate for it accordingly.
“Check the last paragraph you wrote for consistency :).”
I don’t think I’m being inconsistent. The point that I made regarding sitting on cash is related to investment spending. If cash is offering a real return, there is less incentive to invest – and in investment inflation is certainly balanced and taken into account. Again, back to my point on rationality.
“One issue is that, when prices are falling, just sitting on cash becomes an investment with a positive real yield. This means that people may be less willing to spend.”
Do you hold off from buying a computer because you know you’ll be able to get a better one for the same money (or less) next year?
People have finite lifespans, and immediate wants, so they won’t put off purchases indefinitely.
Another way of looking at it is to recognise that the benefits from efficiency gains must accrue to somebody.
Is it better that the populace at large enjoys this dividend (to spend or invest according to their individual preferences), or that it all ends up in the hands of a privileged few.
mrg, agreed, but my point was on investment, which could be lower if cash has a real yield.
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